With business hyped up, the PML-N has an opportunity for boom or bust
“introduce austerity and help business,” are the two lines the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) have given the Pakistan Muslim League-Nawaz (PML-N) government in waiting, while congratulating the “businessman” prime minister-to-be, Nawaz Sharif. Whatever the mixed reaction across the federation may be of the PML-N’s victory, big business in the country is excited – visible most directly at the KESC which soared by another 230 points at close Tuesday – yet another record high of 20,474.62 points after the election, pointing to the privitising credentials of the PML-N in the 1990s. Nawaz Sharif has reciprocated. With a manifesto that promised it would “make Pakistan the 10th biggest economy in the world,” Sharif’s first meeting has been with his former Finance Minister Sartaj Aziz to put Pakistan’s frail economy back on track.
Speaking at a seminar before the election, Sartaj Aziz put the PML-N’s priority to be “reviving the economy within the next five years, by creating pro-investment and pro-business policies.” Aziz said the growth rate would double to 6 per cent; the fiscal deficit would be halved to 4 per cent of the GDP, increasing the tax to GDP ratio to 15 percent, and increase the investment to GDP ratio to 20 percent. All the right phrases were thrown out, but as we know the task is easier said than done. The energy crisis is the one that needs to be resolved before the economy can come back on track. The PML-N’s promise is to add 10,000MW of electricity and mobilizing $20 billion of investment in the power sector.
While the confidence of the business community in the new government is a positive sign, there are a number of hard decisions that Sharif will have to take in the coming months. The first is whether to take the IMF loan facility on offer but on stringent conditions or not? While the balance of payments deficit and seriously shrinking foreign exchange reserves create a need for a bailout, the question is whether an IMF breather will send the next government out on the back foot? The next is how to increase the tax-to-GDP ratio to 15 percent. Will Nawaz be able to persuade the business community to pay up its taxes? And what about the imposition of an agricultural income tax? Being a provincial subject, Sharif will have to wheel and deal to get it imposed across the board. The third question facing Sharif is how to end subsidies without hitting economically vulnerable sections of the society. The gist of the matter is that sorting out the Pakistani economy is not an easy task. A number of hard decisions will have to be taken within the next six months – these will set the next government up for success or failure.
